Happen Inc. reported record third-quarter earnings as loan originations, net interest income and deposits increased, while management said the company’s new Happen Bank brand, credit performance and use of artificial intelligence supported operating efficiency.
Pre-tax income rose 34% year over year to a record $76.8 million, while diluted earnings per share increased 35% to $0.50. The result exceeded the company’s prior quarterly EPS outlook of $0.43 to $0.48. Return on tangible common equity was 15.8%.
Loan originations rose 26% to $3.34 billion, near the upper end of management’s guidance range. Risk-adjusted revenue increased 27% to a record $279 million, while total net revenue was $263 million. Net interest income grew 16% to a record $183 million, supported by growth in interest-earning assets, and net interest margin was 6.05%.
Balance Sheet Growth and Credit Performance
Chief Executive Officer Scott Sanborn said total assets reached $13.3 billion, up 20% from a year earlier, and deposits increased 22% to $11.5 billion. The company ended the quarter with a consolidated total risk-based capital ratio of 17%.
Sanborn characterized credit performance as a central strength, saying the company’s most recent data showed delinquencies roughly 40% below its competitive set. Chief Financial Officer Drew LaBenne said the company retained its assumption for lifetime annualized net credit losses of 4.5% to 5%, even though current performance is exceeding that range.
The net charge-off ratio for held-for-investment loans improved to 3.1% from 3.4% in the prior quarter. Provision for credit losses was a benefit of about $16 million, reflecting observed and projected performance on loans still accounted for under CECL. Management expects an additional provision benefit of $5 million to $10 million in the fourth quarter.
LaBenne said higher benchmark rates during the quarter resulted in approximately $20 million of markdowns on fair-value loans held on the balance sheet. Those effects were substantially offset by a $15 million gain from hedges. The company increased hedge notional balances to $2.45 billion and extended hedge duration during the quarter.
“Our goal is to protect revenue generated by the balance sheet through interest rate cycles within prescribed limits,” LaBenne said.
Brand, Marketplace and Product Expansion
The quarter was the first full period operating under the Happen Bank brand. Sanborn said searches for Happen Bank were more than twice those for LendingClub, while existing members have transitioned to the new brand and prospective customers have responded at higher rates to new advertising creative.
Management said its marketplace funding platform remained an important source of fee-based revenue and a capital-light avenue for loan growth. The company has now surpassed $10 billion of loans sold through its structured certificates program and added a top-10 insurance company as a client through its Fitch-rated structure during the quarter.
The company also began scaling its home-improvement lending operation, generating more than $100 million in originations during its first full quarter in the business. Sanborn said initial home-improvement loans averaged roughly $10,000, though he expects average loan amounts to rise as Happen adds partners.
Happen Connect, the company’s embedded-financing platform, has reduced partner onboarding time by 60%, according to Sanborn. The company expects to add several more partners in the fourth quarter and is developing a merchant portal and multi-draw capability for borrowers.
Management remains on track to launch home-equity products in the second half of next year. However, Sanborn said the business is expected to be primarily a build initiative in 2027, with a more material impact on balance-sheet mechanics likely in 2028.
AI and Operating Efficiency
Happen said AI initiatives helped it support 26% higher loan volume with 20% lower operations headcount. Its AI member-service agent, Penny, resolved 30% more calls than the legacy system, while automated quality assurance now covers all member-support calls.
The company also said coding agents increased pull requests per technology employee by 21%, and it is testing AI applications in fraud prevention, data analytics and autonomous coding with human oversight.
Total expenses were $202 million, with expenses excluding marketing declining sequentially. Marketing expense was 2.2% of originations, up from 2% in the second quarter because of the rebrand. Compensation expense rose 6%, substantially below the 26% increase in originations.
Sanborn said the company generally intends to use AI to increase output from its existing workforce, though it may avoid backfilling certain roles as efficiency gains emerge. LaBenne said the company will still add personnel for growth businesses, including home improvement and home equity.
Fourth-Quarter and Full-Year Outlook
For the fourth quarter, Happen expects loan originations of $3.1 billion to $3.2 billion, reflecting typical seasonal trends and the transition to higher borrower rates. The company forecast diluted EPS of $0.43 to $0.48, net interest margin of about 6%, and total expenses that are flat to down from the third quarter.
Management narrowed its full-year originations outlook to $12.3 billion to $12.4 billion, representing growth of 26% to 27%. It raised its full-year EPS outlook to $1.87 to $1.92.
The outlook assumes stable one- to two-year Treasury rates and a 25-basis-point federal funds rate increase in December. LaBenne said the company expects to raise loan coupons for borrowers over time to address higher rates, while working to manage deposit pricing more effectively than in the prior rate-hiking cycle.
Through Sept. 30, the company had deployed $59 million under its share repurchase program to acquire 3.5 million shares. With $41 million remaining under its authorization at the start of the quarter, LaBenne said Happen plans to increase repurchases through the remainder of the year.
About LendingClub (NYSE:LC)
LendingClub Corporation NYSE: LC operates a digital financial services platform and bank that connects consumers seeking credit with funding sources. The company's primary lending products include unsecured personal loans, auto refinancing and small-business loans, supported by online applications, automated underwriting and digital account management.
LendingClub also offers deposit products, including savings accounts and certificates of deposit, through its banking operations. Its platform serves consumers and businesses in the United States, while institutional investors and other funding partners may purchase or participate in loans originated through the company.
Founded in 2006, LendingClub began as a peer-to-peer lending marketplace and later expanded into a broader digital banking and lending business.
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